Crunch time for London insurers

The London insurance market risks losing its industry leadership because it has failed to modernise and is no longer in control of its destiny, according to a report published today.

The report, The London Insurance Market: Modernisation or Muddle, by academics Leslie Willcocks and John Hindle, says the market, including Lloyd's of London, is "at a turning point" in its 300-year history.

Based on interviews with 75 market players, and comparisons with the London and New York stock exchanges and Chicago Board of Trade, the report says the London market's long-term future depends crucially on decisions it makes over the next 18 months.

The research, sponsored by business process services company Xchanging, says a major problem is the slow pace of technological change, with business in the London market still largely conducted face-to-face, using paper records. It says each of the market's insurance files is copied 30 times and 2m lbs of paper - enough to fill two Boeing 747 aircraft - is transported each year between London and processing facilities in Chatham and Folkestone, in Kent.

One insurance executive states in the report: "Customers find it very difficult. Even the largest are extremely frustrated with the speed at which things are done in the market." Earlier this year, Tony Markel, chief executive of the US insurance group Markel, said service in the London market was "abominable".

The result, say Warwick Business School professor Mr Willcocks and Mr Hindle, a founder of Knowledge Capital Partners, is that London's share of growing non-life global premiums has been declining on aggregate since the early 1990s, losing ground to rivals such as Bermuda.

They say: "While the global insurance market continues to grow, the London market's share continued to fall through 2002 in the face of persistent unwillingness to adopt new ways of working." Its market's face-to-face business processes are deemed "inefficient, costly and not universally beneficial".

However, the report says the market's "personal and institutional cohesion" is a "real asset," while London holds a huge amount of information that could be captured electronically and used to give the market a strategic edge.